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Deal or no deal? Green shoots or wishful thinking?

Published Monday, February 15th, 2016

If any conclusions can be drawn from last week’s IP gathering in London it is that:-  there will not be an OPEC/non-OPEC agreement; worries are emerging that oil demand estimates are more likely to be revised down than up; and oil company CEO’s are more optimistic about a price rebound in the second half of the year than the consensus. Most of the new oil news that emerged favoured the bearish view. The Kuwaitis announced that they expected to increase production by 150,000 bpd in 3Q and all three forecasting agencies cut their call on OPEC oil for this year, not by much but it was the direction that mattered.

In a sign of intent the Iranians released prices for their oil that makes it very competitive with similar quality Saudi barrels and rising concerns about global economic growth are a wet blanket on hopes of any help from the demand side. The IEA forecast oil demand growth this year of 1.15 mbpd, down from 1.6 mbpd in 2015. Vitol told the IP conference that they estimate this year’s demand growth at only 800,000 bpd and the EIA is only forecasting a very modest 110,000 bpd increase in US oil demand. Demand growth that was running at +2.5% year on year in the US in the first half of last year fell to -1.13% in 4Q driven by mild weather and a slowdown in transportation movements.

The numbers point for the third successive year to a supply surplus in every quarter this year. The CEOs of BP and Shell do not agree. They are hopeful of a rebound in the second half which can only be because they are either using different numbers or, without saying it, are expecting an OPEC cutback. The most likely area of number disagreement is on non-OPEC production cutbacks. If the EIA/IEA/OPEC consensus forecast is wrong by 500,000 bpd it is possible to imagine a balanced supply and demand picture in the second half of the year, but still with an enormous overhang to deal with.

to read the rest of the report, please click here

Posted by David Hufton